2 Reasons to Like ULTA and 1 to Stay Skeptical

Over the past six months, Ulta has been a great trade, beating the S&P 500 by 20.5%. Its stock price has climbed to $670.25, representing a healthy 27.8% increase. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is now still a good time to buy ULTA? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.

Why Does Ulta Spark Debate?

Offering high-end prestige brands as well as lower-priced, mass-market ones, Ulta Beauty (NASDAQ:ULTA) is an American retailer that sells makeup, skincare, haircare, and fragrance products.

Two Things to Like:

1. Solid Same-Store Sales Suggest Increasing Demand

Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Ulta’s demand has been healthy for a retailer over the last two years. On average, the company has grown its same-store sales by a robust 2.6% per year.

2. Stellar ROIC Showcases Lucrative Growth Opportunities

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Ulta’s five-year average ROIC was 32.3%, placing it among the best consumer retail companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

One Reason to be Careful:

Long-Term Revenue Growth Disappoints

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Ulta’s 7.3% annualized revenue growth over the last three years was tepid. This wasn’t a great result compared to the rest of the consumer retail sector, but there are still things to like about Ulta.

Final Judgment

Ulta’s positive characteristics outweigh the negatives, and with its shares outperforming the market lately, the stock trades at 24.9× forward P/E (or $670.25 per share). Is now the right time to buy? See for yourself in our full research report, it’s free.

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